Inequality & Gini Lorenz
This week on Facebook: An acquaintance found himself embroiled in discussions about (essentially) wealth distribution in the developed and developing word. This is an area fraught with statistical analysis — mostly written in support of a particular issue — and usually extremely biased.
The statistical proof of wealth related inequality is usually supported by referencing the Lorenz curve and Gini coefficient¹ that are graphic representations showing the distribution of income in an economy. A Lorenz Curve (the actual distribution of income curve), shows the proportion of income earned by any given percentage of the population. The Gini Coefficient, which is derived from the Lorenz Curve, can be used as an indicator of economic development in a country. The Gini Coefficient measures the degree of income equality in a population.
However, while the Lorenz curve and Gini coefficient tell us something about wealth distribution in a society applying such objective statistics to a subjective analysis reminds me that correlation doesn’t imply causation. Conflating the two remains one of the most common errors in comparisons of wealth and the conclusions drawn from such comparisons, which are far more complex than the media portrays them.
Monday 19 September 2016 Ask Gini: How to Measure Inequality: The Gini coefficient has been in the news a lot since the U.S. Census Bureau released its most recent data on income inequality in September. The data show that income inequality in the U.S. is high, but many articles blunder when they try to compare the U.S. to other countries.
Tuesday 20 September 2016 On inequality, let’s do the Palma (because the Gini is so last century): What Gini doesn’t tell us is where that inequality exists. Is it a squeezed middle? Or is it at the poor’s end of the distribution? So if you’re a policy maker working for an incoming president elected on a mandate to address inequality and increase the share of income to the poor, the Gini won’t be a great deal of help.
Wednesday 21 September 2016 What factors influence income inequality? Is it driven by natural causes such as age that can’t be easily effected by policy? Or is inequality rooted in more malleable factors like education or tax policy? A statistical analysis of 53 countries that emerged from a graduate student’s research project provides some clues. And the analysis begins with what social scientists call the Gini coefficient.
Thursday 22 September 2016 17 Things We Learned About Income Inequality in 2014: Income inequality isn’t just about the inability of some to afford the finer things in life. Research suggests that a wide gulf between incomes can have more pernicious effects, such as increased feelings of disenfranchisement, fewer opportunities for advancement, and increased poverty. Some economists have even suggested that a large gap between class incomes can lead to stunted economic growth.
Friday 23 September 2016 What are the top trends facing the world in 2015? Trend 1: Deepening income inequality — Inequality is one of the key challenges of our time. Income inequality specifically is one of the most visible aspects of a broader and more complex issue, one that entails inequality of opportunity and extends to gender, ethnicity, disability, and age, among others.
I read the pun (somewhere) that the Gini can’t be put back in bottle and a brief look at income inequality would seem to support this view. We now live in a global economy obsessed with wealth, particularly what is seen as the trappings of wealth held by others. There does seem to be a paradox inasmuch as the global drive for economic growth has certainly improved the lot of the already wealthy but it relies on creating and feeding an insatiable appetite amongst those less fortunate. Such a paradox now finds a global economy hoist with a global petard, compounded by conflating Gini Lorenz objective measurements with well being.
The Prosperity Index offers a unique insight into how prosperity is forming and changing across the world. Traditionally, a nation’s prosperity has been based solely on macroeconomic indicators such as a country’s income, represented either by GDP or by average income per person (GDP per capita). However, most people would agree that prosperity is more than just the accumulation of material wealth. It is also the joy of everyday life and the prospect of being able to build an even better life in the future.
1 The Estimation of the Lorenz Curve and Gini Index (pdf): For those unfamiliar with JSTOR set up a free account allows you to have 3 (interchangeable) books stored that you can read online.